Accused of secretly siphoning $286.4 million of his assets to a Nevada company so creditors couldn’t get it–and charged with bankrupting the ski resort he built from scratch–Yellowstone Club founder Tim Blixseth sat in a federal courtroom in Missoula yesterday and watched the latest chapter in his legal saga unfold.
The ending might be riches-to-rags.
The 59-year-old real estate tycoon, who launched a lavish 13,400-acre private enclave above Big Sky a decade ago, is on trial before U.S. District Judge Ralph Kirscher for allegedly committing fraud and breaching his fiduciary duties to the club.
The gated millionaires-only community, home of Bill Gates and former Vice President Dan Quayle, went into bankruptcy in November 2008, chiefly due to a 2005 loan transaction in which Blixseth borrowed $375 from Credit Suisse, ostensibly for the club, and then pocketed $209 million of it. Among other deluxe items, Blixseth used the cash to buy a French chateau, a private island, a Mexican golf resort and other properties around the world for a failed uber-rich resort club business he called Yellowstone Club World.
Today, the Yellowstone Club Liquidating Trust, a group charged with liquidating assets to pay off creditors in the wake of the bankruptcy, alleges that Blixseth’s actions “can only be described as looting.” The loan — and Blixseth’s “pattern of deception and self-dealing” — left the club “doomed to failure,” according to the civil complaint by Trust attorney Charles Hingle.
“The truth of the matter is that Blixseth walked away from the Debtors after receiving the benefit of hundreds of millions of dollars, and the Debtors” — the Yellowstone Club and associated entities–“received nothing in return, except enormous liens against their property and an obligation to repay a loan that was never meant for their benefit in the first place,” Hingle wrote. “Blixseth cannot just walk away this time; rather, he must be held accountable for his actions.”
In court today, Blixseth’s lawyers argued in hair-splitting legalese that Blixseth could not be held responsible for the hundreds of millions of dollars at issue. Blixseth maintains, among other things, that the disputed assets and liabilities were transferred to his ex-wife Edra Blixseth in the August 2008 marital settlement agreement (MSA) in the couple’s divorce. He also claims the MSA “released” him from the claims in general, and from claims for breach of fiduciary duty in specific.
Blixseth attorney Thomas Banducci kicked off day one of the three-day trial by questioning Marc Kirschner, head of the Trust, about another defense argument: that there was conflict-of-interest on the Trust board.
“Four out of seven members of the trustee advisory board are appointed by Credit Suisse,” Banducci said to Kirschner. “Didn’t that cause you to think there was a conflict?”
“They’re independent businessmen or work for hedge funds– they’re not beholden to Credit Suisse,” Kirschner answered from the stand.
But Judge Kirscher himself ruled that Credit Suisse’s actions in the Yellowstone Club matter “were so far overreaching and self-serving that they shocked the conscience of the Court,” Banducci reminded Kirschner. “Did that not concern you?”
“No, because the matter was resolved,” Kirschner replied.
“But if this lawsuit is successful, the lenders [Credit Suisse] will benefit,” Banducci said.
“If this lawsuit is successful, all the creditors will be successful,” Kirschner answered.
Outside of court, meanwhile, some of the evidence against Blixseth seemed more clear-cut, particularly in terms of a court document filed by the Trust on Feb. 19.
The complaint alleges that shortly before the Yellowstone Club filed for bankruptcy, Blixseth made “numerous transfers of assets” to a Nevada entity, Desert Ranch LLC, that he set up to shield his assets from creditors, rendering himself insolvent, at least on paper.
“Blixseth implemented a scheme to defraud his creditors, including the debtors,” immediately after signing the marital agreement, the complaint asserts. “Specifically, beginning in August 2008, approximately three months prior to the filing of this bankruptcy, Blixseth personally transferred or caused to be transferred virtually all of his assets to Desert Ranch for less than reasonably equivalent value.
At the time of the transfers, Blixseth knew the Yellowstone Club and its associated firms “had substantial claims against him … and he knew that the Debtors were in serious financial trouble. At the time of the Desert Ranch transfers, Blixseth was insolvent or became insolvent as a result.”
The complaint calls the Desert Ranch set-up “a garden-variety asset protection plan” that shields assets while allowing debtors to continue enjoying their wealth.
Blixseth, a Washington resident, owns 98 percent of Desert Ranch; the other 2 percent is owned by an associated Nevada company, Desert Ranch Management, in which Blixseth owns a 40 percent share. His son Beau Blixseth owns 30 percent of it; the remaining 30 percent is owned by two trusts run by George Mack, “a long time friend and business associate of Blixseth,” the court document claims.
More remarkable, the alleged asset-hiding was laid out in smoking-gun invoices from Thornton Byron, a Boise law firm that allegedly guided Blixseth through the Desert Ranch deal. According to court documents, Thornton Byron advised Blixseth how to “isolate” his assets from “the imminent bankruptcy” after the division of property in his divorce.
Detailed billing statements–more than 30 of which are posted in the complaint–give shorthand descriptions of the divorce battle starting in April 2008; they end in June 2008 with details about how Blixseth protected what he’d won.
On June 17, 2008, according to the invoices, the lawyers discuss concerns “regarding Mr. Blixseth’s possible liability to creditors of Mrs. Blixseth, Blixseth Group Inc. or the Yellowstone Club entities if Mrs. Blixseth were to assume liabilities of business entities.” They also perform “analysis of documentation and transactional steps to limit Mr. Blixseth’s exposure on subsequent collection efforts with respect to liabilities assumed by Mrs. Blixseth.”
On June 10, 2008, the lawyers plan how to “isolate Desert Ranch property” to “limit potential liability.” On June 9, 2008, they “evaluate the cancellation of debt considerations and potential issues with respect to a bankruptcy.” And on June 6, 2008, they “address the issues re the potential exposure vis-à-vis a bankruptcy … to provide maximum protection for Mr. Blixseth.”
The complaint demands that Blixseth give all the transferred assets to the Trust. According to the court document, the properties protected by Desert Ranch include:
— One-third ownership interest in Western Pacific Timber, valued at $40 million
— Three entities that own stock in a Mexican company with residential properties in Tamarindo, Mexico, valued at $2 million
— Fifty percent ownership in a 640-acre parcel of land in Bozeman, Montana (not valued)
— The Buffalo Bill Ranch in Cody, Wyoming, valued at $3.5 million
— Western Air & Water, valued at $25 million
— Emerald Cay Ltd., with a private island in the Turks & Caicos worth an estimated $35 million
— Desert Ranch, which owns 3,000 acres of land, valued at $100 million
— Tamarindo resort in Mexico, valued at $40 million
— Nineteen businesses in the United States and more than 10 other foreign businesses
Blixseth is not the defrauder, Blixseth’s lawyer Michael Flynn told the court. Among other things, Flynn alleged that Blixseth and the club were misled by Edra, who derailed a more than $400 million bid by Boston-based CrossHarbor Capital Partners to buy the Yellowstone Club in the spring of 2008, he said. (CrossHarbor, led by real estate investor Sam Byrne, succeeded in buying the bankrupt club for $115 million last July.)
Edra Blixseth is now in Chapter 7 bankruptcy, but she’s the one who hid assets, Flynn alleged.
Blixseth, a man whose name in news articles is rarely mentioned without the accompanying words “timber baron,” listened soberly from the defense table in a charcoal-gray zip-necked sweater.
“In fact, Mr. Blixseth was defrauded,” Flynn said.
For more on the Yellowstone Club saga, see our archive of coverage here.